Myanmar phases out dollar surrogate

Myanmar abolished its secondary currency, the Foreign Exchange Certificates (FEC), on March 20, 2013 as per an official announcement by the Finance Ministry.

FEC were in circulation since 1993 as an alternative to the US dollar, which was officially banned, at a fixed rate of 1:1. The main effort was to stop tourists from exchanging currency on the black market, where the value of the dollar was considerably higher than its official rate against the country’s currency, the kyat. It was mandatory until 2003 for tourists to buy at least $200 worth of FEC when entering the country.

Myanmar’s finance minister Win Shein said the FEC, of which around $30 million are still in circulation, is “no longer needed”.

To phase the currency out and replace it with the kyat, a scheme will be set up to systematically abolish FECs in collaboration with the country’s central bank, government banks, private banks and related organisations. However, the move will also test the public’s confidence in the kyat, economists argued. Many FEC holders might experience a considerable capital loss in kyat terms and would want to exchange FEC into dollars.

Many government institutions conducted their financial affairs in FEC, while certain transactions involving customs – including the purchase of foreign imported cars – required the currency.

Myanmar has reformed its monetary system in 2011, including the introduction of a managed floating rate of the kyat against the US dollar at an initial rate of 818 kyat per dollar. On March 21, the rate was round 880 kyat to 1 USD.

Before, the government had maintained an artificial kyat rate of 6.70 against the dollar, while the black market rate was up to 1,335 per dollar, with peaks in the tourist high season.

Myanmar is one of the last nations to abolish FEC banknotes. Mainly socialist countries such as the Soviet Union, China, eastern European countries as well as some African countries were using FEC in the past. Today, dollar surrogates are still in use in Cuba (‘convertible peso’) and North Korea (‘tourist won’).